June 27th, 2007

What Will Burst The TV Advertising Bubble?

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Why does TV advertising continue to do well in the face of declining viewership and transcendent online video? Here are some examples of the typically contradictory reports that make it so difficult to get a handle on what’s really going on (bold is mine):

The major U.S. TV networks, after a slow start to the annual advertising negotiating season, have completed most of the prime-time commercial deals at prices above a year ago, executives said on Wednesday.

Although volume was down in some cases, prices were up across the board by an average of between 5 percent and 9 percent based on cost per thousand viewers, media executives said. (via Reuters)

Broadcast television’s annual springtime sales bazaar drew to a close Friday with the five networks surpassing their estimates by ringing up a combined $9.3 billion in commitments for prime-time commercial spots for the coming TV season.

The so-called upfront ad market was surprisingly strong this year, with broadcasters increasing their take by about 5% compared with last year despite generally lower ratings. Networks were also swamped with orders for spots in national evening and morning newscasts. (via LA Times)

[Robert J. Coen, senior VP-director of forecasting at Universal McCann] said large companies have been cutting expenses wherever they can as they focus on productivity and profit growth. Online advertising and search marketing have “violently” impacted established media as the appeal for marketing tactics closely tied to transactions grows.

In terms of national advertising by medium, Internet and direct mail were the biggest gainers in the first quarter, growing 16.7% and 4.5%, respectively, ovwer the same period last year. Spending on TV, spot TV, syndicated TV, spot radio and newspapers decreased in the first quarter. (via BtoB)

[Joseph Rizzo, U.S. Advisory Technology Sector Leader for PwC] said Internet advertising was being helped by a decline in television viewing by key audiences for whom “the Internet has become an integral hub of their daily experience”. (via Reuters)

It’s pretty clear that TV advertising is now in a bubble, with advertisers bidding up prices on a medium that no one ever got fired for using and that many ad agencies have deeply vested interests in propping up. But given the intense competition from online media — both in terms of the shift in consumer media habits and the greater measurability of online ads — it seems unlikely that this overinflated condition can last.

One factor preventing the bursting of the bubble is a lack certainty around online video formats, e.g. pre-roll, mid-roll, post-roll. The conventional wisdom is that consumers are used to advertising on TV shows, and even though most advertisers know that consumers channel surf, get up from the couch, and zap commercials with DVRs, they have been doing TV advertising so long that they can still pretend that it’s reliable and effective. Nielsen also contributed to propping up the TV advertising market by creating new TV ad ratings, which have now become industry standard:

Media executives said that the majority of deals for this year’s upfront — the period when networks sell about 80 percent of their prime-time advertising inventory — were based on the Nielsen commercial ratings known as live plus three.

That measurement takes into account how many viewers watched commercials that ran during the program when it first aired, plus the next three days on DVR playback.

The game with video advertising, whether traditional TV or online video, is more about perceptions than reality, and more about industry standard metrics than actual ROI. The only way online video providers will succeed in bursting the TV advertising bubble, so that they can soak up the flood of ad dollars, is to create industry standards that will help big brand advertisers find their comfort zone.

Of course, when the bubble does burst, a lot of the money, which is based on old monopoly pricing, will simply evaporate, as it has with newspaper advertising. The question for TV networks is whether their transition to digital will be as ugly and painful as it has been for newspapers.

Comments (6 Responses so far)

  1. Every week we run across a number of articles that catch our eye. As a regular feature, we round them up for a little something we call The List: Israel Technology Generations – Shai Agassi Ning! MySpace is dead. Long live social networking. – ZDNet What Will Burst The TV Advertising Bubble?

  2. [IMG Alice_2]Scott Karp summarises the alice-in-wonderland quality of the US upfront process which this year secured $9.3bn dollars for the five networks, an annual increase of 5 per cent. It seems that this price inflation will continue until a new reliable metrics driven market

  3. It’s really difficult to draw apples vs. apples comparisons because of the changes in Nielsen ratings. It looks like networks are finally getting compensated for DVR ad impressions that were freebies last year. On the other hand, the TNS stats you quoted total this way for the first quarter ’07: Local and network television advertising down over $600m or about twice the $300m loss by newspapers. That’s a big drop that can’t be explained away by the absence of Olympics in ’07. Meanwhile Bob Coen cut his ad forecast again yesterday. Next year is a political year so broadcasters will have an Indian summer. No one blows bubbles in wintertime.

  4. I’m glad to learn that I am not alone with this burning question. For me it always seemed as if there coincidently raised a collective blind spot in the marketers panorama eversince the remote control appeared on the landscape. On the other hand, those 17,3 % increase of internet ad-spending in 2006 (reported by PWC recently) were not that breathtaking anyway. Money follows eyeballs, they say, but while voyeurs do not initiate transactions, ad-budgets may find themselfes in a comparable trap as private equity funds: How to spend it!

  5. I think the outlook is different coming from those of us regularly using technology – I for one don’t even own a TV.

    The medium is still very much ingrained in our society – especially among certain populations.

    Its still unclear, for me, from this post – why there is a bubble.

    Is Primetime television viewership declining or just television viewership overall?

  6. TV ad dollars will move onto the net once the net can support high-resolution video and has become, in effect, the New TV. Advertisers would love nothing more than to have the visual impact of TV along with the ability to track and interact that online provides.

    Be careful of what you ask for… you just might get it.

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